HwangDBS: Bursa set to see return of foreign funds

MALAYSIA'S stock market is likely to see the return of foreign funds, especially if global equities turn increasingly volatile ahead, says HwangDBS Vickers Research Sdn Bhd(HDBSVR).

The foreign research firm said as the risk-reward profile tilts to the opposite direction because of stretched valuations, strategists may be tempted to make a gradual tactical switch to more defensive low-beta markets like Malaysia to diversify their risks.

The prospect of an appreciating ringgit is an added appeal for investors in search of incremental investment returns.

HDBSVR said even though Malaysian stocks remain unexciting from a broad valuation perspective, there are "hidden gems" to be found using a bottom-up approach.
These are fundamentally under-valued stocks that were once favourites of foreign investors, but are now under-owned by them.

"Combing through our 'buy' list of big and mid-cap companies, under-owned stocks - with foreign shareholdings far below their recent peaks - that could increasingly come under the investment radar of foreign investors again are CIMB (with 33 per cent foreign shareholding as of end-June 2009 versus a peak of 54 per cent), IJM Corp (34 per cent vs 62 per cent), MRCB (19 per cent vs 44 per cent), SP Setia (28 per cent vs 56 per cent) and Tenaga (11 per cent vs 28 per cent)," it said in a market focus report titled "What foreigners want" yesterday.

Additional counters currently rated "buy" by the research firm that can increasingly gain traction among foreign investors again include Gamuda (45 per cent foreign shareholding in June 2009), Genting (44 per cent), Genting Malaysia (33 per cent), Hong Leong Bank (7 per cent), Proton (16 per cent), Public Bank (25 per cent) and RHB Capital (5 per cent).

HDBSVR noted that foreign investors were conspicuously absent from the scene when the Malaysian stock market jumped 51 per cent from a trough of 836 in mid-March 2009 to now.

"This was evident in the insignificant level of trading activity by foreign investors (just 25 per cent of trading value in January-September 2009) and the persistent net portfolio investment quarterly outflows (since third quarter of 2007) with foreign ownership standing at a five-year low."

Foreign ownership - standing at 21 per cent of overall market capitalisation as of September 2009 - is also at its lowest in five years.